The Treasury has abandoned its proposal to introduce a single inheritance tax (IHT) nil-rate band (NRB) to be divided between all of an individual settlor’s trusts.
The proposal was published in June this year, as part of a package advertised by HM Revenue and Customs as simplifying the periodic IHT charges imposed on relevant property trusts. However, it is suggested that its real purpose was to counter the established tax planning strategy under which a settlor could create multiple pilot trusts and settle a fraction of his or her estate into each one.
This strategy took advantage of the fact that each such trust is entitled to its own full IHT nil-rate band, provided the trusts were established on different days. The Treasury’s plan was to give each settlor a settlement NRB on top of the standard personal NRB, and fixed at the same amount. Settlors who created multiple trusts would have to make a statutory declaration to their trustees, stating how the extra NRB is to be allocated among all their trusts.
The proposal has, however, received criticism from professional bodies, partly because its retrospective effect would force some individuals to undo much of their previous estate planning.Instead the Treasury will introduce new targeted rules to prevent the use of multiple trusts to avoid inheritance tax. No details of these are currently available.
Source: www.step.org